Firstly, you need to learn that a portfolio is a term also used in finances and it denotes a (preferably) diversified collection or set of investments (such as stocks, bonds and cash), which are held by an individual investor and/or managed by hedge funds, banks, financial professionals and other financial institutions. To ultimately ascertain what is an investment portfolio let us learn more about the types of investment instruments.
An investment portfolio is an investment made by one of the above-mentioned investors who are not interested in getting involved in the management of the company. The investment is made with the sole purpose of financial gain. All investments carry risk, eg. The stock value of a company might go up or down. If you invest all (of your cash, for example) in one company, your financial income will fluctuate with those of the company you invested in. If the company turns bankrupt, you lose your investment. In consequence, instead of investing in just one company, you invest in a multiple number of companies. Moreover, you are able to make different types of investments, such as: bonds, commodities (eg. silver and gold), real estates, stocks, cash, etc.
When asking what is an investment portfolio, you should also know that there are three types of investment portfolios based on your risk tolerance level:
- Aggressive Portfolio – for investors with high risk tolerance
- Balanced Portfolio – for investors with average risk tolerance
- Conservative Portfolio – for investors with low risk tolerance
You have to decide which portfolio suits you best. You can also choose to be somewhere between the three mentioned portfolios; for example, if you prefer to be in between a balanced and aggressive portfolio, your investments will neither be considered as aggressive nor balanced.
Taking into consideration all of the aforementioned concepts, we conclude with the answer to the question what is an investment portfolio: an investment portfolio is a collection of investments, for example bonds, equities, mutual funds; some people may also include in their portfolios investments in the form of real estates and bank deposits. For people who want to diversify their portfolios beyond the mentioned investment instruments, commodities represent a great option, although trading in commodities is more difficult than trading in securities. However, the fundamental secret in having a successful portfolio is diversification across both different types of investment instruments and asset classes, industries, sectors, risk-return potential, etc.